What if we've got mobile wallet all wrong?

The future of adoption may not be as reliant on NFC as some may think.

We've all read the predictions of how consumer adoption of mobile wallet, technology that allows consumers to make payments with their smartphones in lieu of credit or cash, is about to take off. In a few short years, with a mere swipe of our smartphones, we'll be able to swiftly pay for goods and services everywhere we go. We've seen Mobil's SpeedPass and MasterCard's PayPass provide the roadmap for that kind of future, and a recent eMarketer study predicted that retail m-commerce sales would reach $86 billion by 2016.

Yet in an age when consumers have demonstrated the propensity to adopt new technology quickly—think Pinterest going from unknown web site to social powerhouse in less than 12 months, or Groupon going from shopper darling to cautionary tale in the same timeframe—why has there been so little progress in advancing mobile wallet adoption?

Many experts blame the hardware manufactures. It's Apple's fault for not including a Near Field Communications (NFC) chip with their latest iPhone release. Near Field Communications allows two devices in close proximity to establish a connection and transfer data, in this instance your smartphone and a piece of hardware at the register. These same experts point to the next iPhone or Samsung Galaxy release as the tipping point. Once Apple includes the technology, mass consumer adoption will begin, as will the next wave of m-commerce. After all, we've already seen this model work at Starbucks, which processes more than two million mobile transactions per week through its mobile app.

This argument is legitimate, and may in fact be accurate. Yet as payment services like Google Wallet and Isis, a mobile wallet consortium led by three major U.S. wireless carriers, continue to invest in an NFC-based solution, mobile phone manufacturers have yet to play along. What's more retailers have been slow to invest in the receiver hardware they would need to install on their checkout counters to participate.

This begs a very simple question: What if the technology is the roadblock, not the handset manufacturers' willingness to outfit their devices or the consumer's receptiveness to a mobile wallet solution? What if our vision for a mobile wallet future is off?

The fact is the current roadmap requires a significant investment for all parties involved. Manufactures and retailers alike must invest in hardware upfront—a sunk cost with a short shelf life. Those who have been willing to invest, like Macy's through Google Wallet, have been left with nothing more than technological eye candy at their registers; an unused screen occupying valuable real estate at checkout while serving as a reminder to innovators that mobile wallet is "ahead of its time." Those who have succeeded, like Starbucks, are blessed with a closed system in which they own the hardware and software, a younger and more affluent user base, and a new set of purchase motivators that encourages prepayment.

So while Google, Visa, and others invest millions in perfecting a NFC-based solution, and the wireless carriers invest hundreds of millions in joint ventures in their quest to dominate any mobile payment system that emerges, there's another player lurking who's quietly winning, convincingly, already. More importantly, that player may be providing a truer roadmap for us all.

In 2012, eBay's PayPal handled $14 billion in mobile payment transactions, more than three times more than $4 billion in 2011. While a vast majority of these transactions are the result of a traditional e-commerce style purchase via mobile, it represents the foundation for how this transaction can work. More importantly, it demonstrates consumer trust in this service. PayPal already has deals in place with Home Depot, RadioShack, Dollar General, and about 20 retailers, so that consumers can now pay with PayPal at the checkout counters in some 18,000 U.S. stores.

So, to marry the points, as Google Wallet is testing NFC with a few select retailers, and Isis has struggled to effectively implement a two-market test, PayPal expects to process $20 billion this year in mobile transactions, establishing a confident user base ready and willing to engage.

Is the dirty little secret that the hardware costs on each side of the NFC equation are really unnecessary?

So how does the PayPal model work? Simply connect your existing PayPal account to your existing mobile device. In some instances, you don't need your smartphone at all. A recent activation at Home Depot leveraged the point-of-sale system already in-store, allowing shoppers to enter their phone number and PIN code to complete the transaction.

As I think about this example, I keep asking the same question; is it possible that our cloud-obsessed culture has ignored what's right in front of our eyes? Do we really need a smartphone in this equation? What if software investments with linkages to POS systems, complete with rolling upgrades and smaller sunk costs upfront ultimately win vs. the current roadmap of upfront hardware costs, short lifespans and short-term obsolescence risks?

There are still many questions we all must answer about the future of m-commerce and the mobile wallet; questions an entire industry seems to be struggling with… except maybe for eBay CEO John Donahoe, PayPal president David Marcus and their band of quiet pioneers at eBay and PayPal.

By Brian Cohen, executive vice president and general manager, Etailing Solutions.